Monday, November 3, 2008

Income taxes DOWN but everything costs more

It seems to be a foregone conclusion that Mr. Obama is going to win the Presidency. Too bad the major media hasn't asked him how much of his $4.3 trillion of new programs are going to cost the taxpayer.

Consider if you will that 2% of Americans filing income taxes are taxed at a 35% rate. In 2006 they earned $ 1.3 million per filing and then they paid 39% of their adjusted gross income (AGI). When you sum all the taxes paid by this group it totals to $1.14 trillion. The next 3% of income tax payers’ pays at a rate of 33% of their AGI. This group earns $333 thousand per filing. When you sum all the taxes paid by this group it totals to $410 billion. These two groups are the top 5% taxpayers.

The sum of taxes paid by the top 5% adds up to $1.45 billion per year. Under Obama’s plan your taxes will revert to the pre-2001 levels of 36 percent and 39.6 percent for the top 5% of wage earners. Simply put the top 2% will pay an extra $150 billion of new taxes. The next 3% will pay $37.2 billion of new income taxes. So an additional $187.2 billion in new income taxes are paid. Mr. Obama’s tax plan requires $430 billion per year. Under Mr. Obama’s plan another $242.8 billion is needed to pay for his new programs.

The shortage is to be paid by increasing corporate taxes by more than 25%. Today most corporations pay taxes at a rate of 35%. The new rate would be 43.75%. A meal out with the family might cost $100 and of that $100 taxes are paid on profits of $33. Under the current plan the meal has $8.25 built in. Under the new plan the tax of $14.44 will still be built in. The new price of the meal would be $106.19. Let’s say that you go out to eat once a week you will pay $322 per year. The corporations that make your food are taxed. Consider that you buy $244 groceries the national average price for this example $80 is profit. Under the new tax plan groceries will cost you an extra $364 per year. The example can go on and on. So just because you might get an income tax reduction your actual taxes will go up, just not your income taxes.

I believe it is a mistake to raise corporate taxes by a lot, but I don't believe it's a mistake to raise taxes for high-income individuals. It is a fact that poor people spend more than rich people of their disposable income, but it is definitely not a fact that the golden goose theory is true. Moreover, we need to discuss the ability for people to put food on the table and recover from illness, which is a discussion with a different level of importance from the discussion of discretionary spending and entrepreneurship vis-a-vis tax policy.

I could name any number of agencies that we could abolish, retire the workers at 80% of their pay, provide them catastrophic health insurance, sell off all the agency assets--buildings, vehicles, land, office equipment--and apply that toward the national debt. Everyone wins.

But wait...that would require that the President promise not to be Santa Claus. We can't have THAT!